FDIC Law, Regulations, Related Acts

4000 - Advisory Opinions

This is in response to your letter of April 30, 1991 pertaining to
the federal deposit insurance of escrow accounts.

Based on your letter and our telephone conversations, it is my
understanding that your firm, ***, proposes to create a program through
which participants may obtain rebates on goods, services and
contributions purchased from vendors which are under contract with ***.
The vendors will send the participants' rebates and *** marketing fees
to an insured depository institution (the "Bank"). Pursuant to an
agreement between the Bank, *** and an insurance company, the bank will
hold the participants' funds and *** marketing fees in an escrow
account. Marketing fees will be remitted directly to *** from the
account. The participants' funds will be remitted by the Bank to an
account in another insured depository institution held by the insurance
company. At the option of the participants, the
insurance company will either send the
funds to the participants or sweep them periodically into annuities
which the participants have purchased from the insurance company.

You state that *** has ensured that the deposit account records of
the Bank will adequately disclose that the Bank holds these funds as an
escrow agent on the behalf of *** and the program participants. You
also represent that the ownership interests of *** and of the
participants in the escrow account funds will be ascertainable either
from the deposit account records of the Bank or from the records of ***
which has undertaken to maintain such records for the Bank. You wish to
ascertain whether separate deposit insurance coverage for the escrow
account funds will extend (or "pass through") to the participants
and ***'s interests in those funds.

If the deposit account records of the Bank disclose that the Bank
escrow account funds are held pursuant to a fiduciary relationship, the
details of the relationship and the interests of the other parties in
the funds can then be ascertained either from the deposit account
records of the Bank or from the records of ***. 12 C.F.R. § 330.4(b).
Funds in an escrow account are usually insured on an agency basis to
the principals in whatever right and capacity that the funds are held
in. 12 C.F.R. § 330.6(a). Since the funds in the Bank escrow account
are held by an insured depository institution in a fiduciary capacity,
however, they would be separately insured up to $100,000 for each owner
or beneficiary represented. 12 C.F.R. § 330.10(a). This would be in
addition to the insurance provided for any other deposits of the
principals with the Bank even if held in the same right and capacity.
This holds true for the funds which are attributable to *** and those
which are attributable to the participants.

Once the funds are transferred, however, to the account of the
insurance company with another insured institution, separate insurance
coverage will no longer be provided because the funds will no longer be
held by a depository institution in a fiduciary capacity. They would
instead, in the event of an insurance determination, be aggregated with
any other deposits in that institution which the principals hold in the
same right and capacity and insured up to $100,000. 12 C.F.R.
§ 330.3(a). It must be noted that the same requirements for
pass-through insurance which were enumerated for the Bank escrow
account also apply to the insurance company's account. The fact that
the funds are held pursuant to a fiduciary relationship must be
disclosed in the deposit account records of the insured institution and
the details of the relationship and the interests of other parties in
the account must be ascertainable either from the deposit account
records of the institution or from the records of the insurance company
(or from the records of some person or entity hired by the insurance
company for that purpose).

I hope that this letter is responsive to your query. Please contact
me if you have any questions about this or any other
matter.